A brief report today and I’ll let you go to your weekend plans. First, the Fed’s favorite inflation indicator was posted today and much to the surprise of no one, it has continued to charge higher.
The current reading for the PCE Price Index is 6.1%. This beat expectations of 5.9%. Even the so called ‘core’ PCE rose to 5.2%. This is the highest the PCE has been since February of 1982 and the ‘core’ since April of 1983. This is stunning because they have continued to alter how the PCE is calculated and whenever a change is made, it never results in higher inflation figures. We are truly nearing unprecedented figures in inflation.
The rise from December saw increases in goods at 8.8% and services at 4.6%. Energy prices increased 25.9% on an annual basis. Oil has been wicked hot and continues to near $100. Food prices increased 6.7% on an annual basis. I believe this is where we are going to see some big increases moving forward.
I had an email exchange yesterday with a fellow reader about pesticides and fertilizers. He passed along these links:
https://www.agweb.com/news/crops/soybeans/herbicide-options-dwindle-weed-control-soybeans
https://www.agweb.com/news/crops/crop-production/8-ways-ready-your-weed-control-practices
Farmers are struggling to source pesticides and herbicides and it is VERY early in the season. Most farmers I know are still taking vacations and cleaning up their shops. On top of this, fertilizer is getting scarce and expensive. This will quickly lead to higher food prices. Farmers will be forced to cut back on their usage of fertilizers and chemicals. This will cause their fields to yield less. Once that begins to happen, less product will be available on the shelf. From there you will start to see real sticker shock at the grocery store.
I’ve previously outlined ways to take advantage of this opportunity and I stick by them. Wheat, corn, and soybean futures and their related ETFs; weat, corn, and soyb work well as direct exposure to the soft commodities. If you want to get fancy there are all sorts of soft commodity futures such as lean hogs (/HE), feeder cattle (/GF), live cattle (/LE), and soybean oil (/ZL) but you’ll need to do your own due diligence. I am not about to wade into all these different futures contracts.
If you are looking for more indirect exposure which has the ability to increase returns I am continuing to stick by ag input companies like Mosaic (MOS) and Nutrien (NTR). Both have had impressive gains on the day. A third option brought to my attention is ICL Group (ICL). You can also invest further down the food chain with Tyson (TSN).
Finally, I’ll leave you with the graph below. It shows the real disposable personal income of Americans.
You guys are a smart bunch so I encourage you to post in the comments below what you think the consequences of this might be.
